Gold Slump Slows as Fed Says It’s Prepared Market for Rate Rise

November 20, 2015 (Source: Bloomberg) — Gold held above a five-year low as Federal Reserve Vice Chairman Stanley Fischer said that U.S. policy makers have done their best to prepare markets for the first interest-rate increase since 2006.

Bullion is set to end a four-week losing streak after a technical measure showed the metal was the most oversold since July. Prices rose the most in five weeks on Thursday, when Fischer said the central bank has done all it can to avoid surprising markets when it raises borrowing costs.

Fed-fund futures show a 68 percent chance that policy makers will raise rates at the Dec. 15-16 meeting. Higher rates curb the appeal of precious metals because they don’t pay interest or give returns like other assets such as stocks or bonds. Investors are holding the least gold through exchange-traded products in six years.

“Most of it seems to be absorbed by the market for now,” Karvy Commodities Broking said in a report Friday. “It is not being said that after the rate hike the prices won’t fall, but the point here is that the prices have already shed a substantial part from mid-October on the expectations.”

Gold Price

Gold for immediate delivery added 0.3 percent to $1,085.35 by 11:06 a.m. in London, according to Bloomberg generic pricing. It’s little changed this week after climbing 1.1 percent on Thursday. Prices fell as low as $1,064.55 on Wednesday.

The metal’s 14-day relative-strength index declined to 21.3 earlier this week. That indicates to traders who study charts that prices may be poised to rebound.

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“Gold is likely behaving as a technical play again, with $1,080 as a handle market-watchers view as a ‘middle-ground’,” Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore, said by e-mail. Prices may drop to $1,050 if the Fed raises rates next month while the metal may climb to $1,200 by year-end if policy makers wait, he said.

Holdings in gold-backed ETPs fell 2.6 metric tons to 1,504.54 tons as of Thursday, the lowest level since March 2009, data compiled by Bloomberg show.